What is meant by capital market line?
The capital market line (CML) represents portfolios that optimally combine risk and return. It is a theoretical concept that represents all the portfolios that optimally combine the risk-free rate of return and the market portfolio of risky assets.
What is the capital market line formula?
The slope of the Capital Market Line(CML) is the Sharpe Ratio. You can calculate it by, Sharpe Ratio = {(Average Investment Rate of Return – Risk-Free Rate)/Standard Deviation of Investment Return} read more of the market portfolio.
What is the difference between CML and SML?
Difference between SML and CML CML is used to see a specific portfolio's rate of return while the SML shows a market risk and a given time's return. SML also shows the anticipated returns of individual assets. CML shows the total risk and measures it in terms of the SML (beta or systematic risk).
Why is capital market line straight?
The Capital Market Line (CML) is a straight line that begins at the risk-free rate and ends at the highest possible expected return for any given risk level. The line shows the required expected return for every possible level of risk and the risk-return ratio (the slope) is determined by the market portfolio.